On average, customers renewing their insurance policy with the same insurer paid 27% more than new customers, according to research carried out last year by the New South Wales's Insurance Monitor. More recent data indicates the gap has risen to 34%. This translates to hundreds of dollars for the average home and contents insurance policy.

Professor Allan Fels, the NSW Government's Insurance Monitor, said in commentary in The Conversation, an independent source of news and views from the academic and research community, says that loyalty taxes appear to be widespread in Australia.

A loyalty tax occurs when discounts are offered to new customers while longer-term customers pay more. Often this involves increasing premiums at the first and subsequent renewals.

Prof Fels wrote, “Discounting to win new customers is not fair if the costs of that discount are passed on to longstanding customers. It discriminates against people who do not or cannot easily switch to another supplier. Vulnerable consumers – elderly consumers, those on low incomes, low education, or those with a disability – are disproportionately affected.

“Complicated pricing structures often make it hard for consumers to compare quotes to see if one deal is better than another.”

It’s quite possible they may not be aware they are paying more each year. Companies can get away with making large price increases over successive renewals with little fear a customer will switch.

Prof Fels says that the practice is deceptive and falls short of community expectations. Greater respect for loyal customers is something the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry said financial institutions should have better regard for.

In NSW, as Insurance Monitor, Prof Fels introduced a requirement that insurers must display the previous year’s premium on the renewal notices to policyholders. It is now a mandatory requirement in NSW, coming into effect this month. All of the major insurers have decided to make the change nationwide.

The Insurance Monitor’s role to make sure insurers do not charge unreasonably high prices or mislead policyholders while the Emergency Services Levy (ESL) is charged on property insurance policies.